FORTUNE -- Ever heard of EveryBlock or Village Soup? What about Backfence? Each community-focused venture launched, then folded. Many more so-called hyperlocal sites have also tried and failed. Even AOL's Patch news sites have had trouble sticking. Their struggles beg the question: Why is hyperlocal so hard?
It shouldn't be in theory, at least where news is concerned. The ongoing decline of small, local newspapers presents what seems like a significant opportunity for ventures like Patch. (Arguably, many local residents still want to stay informed on nearby goings-on.) And yet the company that AOL (AOL) CEO Tim Armstrong acquired for an estimated $7 million back in 2009 has since struggled to reach profitability. In 2011, Patch made $20 million in revenues; a former employee told Fortune that just 12 of the 863 Patch sites then were profitable. Fast-forward two years: Armstrong announced this month that 400 of Patch's 900 sites would either be shuttered or partnered off, resulting in 500 employees losing their jobs. Ouch.
Part of Patch's problem, and other previous hyperlocal efforts, has to do with way it rapidly expanded. "They went all in before they perfected the product, and in retrospect, that wasn't ideal," a former AOL executive told Fortune last year. To be fair, Armstrong has said one-third of Patch sites are already successful, while the other third will likely turn a profit. If Patch becomes largely profitable by the end of year, which Armstrong has pledged, it will have done so amid serious struggles and major changes in strategy, from having bloggers contribute content to trimming budgets across the board.
Indeed, the better approach sounds ridiculously basic but important: get the core product right first, then grow from there. Patch grew first, problem-solved later, then dealt with the fallout caused by its brash expansion. Also, different geographic areas will use a product differently, with popular content in one market being less read in another. New hyperlocal startups should be taking note of Patch's failures.
"When you start to fragment editorial into hundreds if not thousands of different sites, well, I can't think of an example that's worked," admits Nirav Tolia, CEO of Nextdoor, who admires Patch's efforts but differs on how to grow a company. Prior to Nextdoor's launch in October 2011, Tolia and his team spent a year in a pilot phase, testing out their idea of neighborhood-focused social networks, learning how they were used, and tweaking features accordingly. One of Nextdoor's first testbeds was a Menlo Park neighborhood with 150 households, a number the company believed would be the average sweet spot for all neighborhoods. But more testing proved otherwise, with each network ranging between 500 and 3,000 homes.
Two years later, Nextdoor is now available in nearly 18,000 neighborhoods in all 50 states, with users numbering in the single-digit millions, who chatter on about bikes they want to buy or last night's burglary. And according to Tolia, there isn't a place where a Nextdoor social network has not eventually grown into a local hub with between 500 and 1,000 users. Promising growth to be sure, but it's still too early to tell whether Nextdoor's viral user growth will translate into a long-term profits. Still, it is enough for Nextdoor to push up its goal of introducing new streams from 2015 to summer of next year. "Long-term we believe there's the potential to build the next yellow pages," waxed Tolia.
Outside of news, the strategy has also worked for other hyperlocal players. Yelp (YELP), the business directory and customer review site, took a similar approach and now, eight years later, trumped Wall Street estimates with $55 million in sales during the second quarter, a 69% jump year-over-year. And according to CEO Travis Kalanick, his four-year-old car-summoning app Uber is profitable in many of the 38 cities it's expanded into, a process that involves sending employees to a potential market for up to several months to study factors including local transportation systems to anticipate potential supply and demand.
Indeed, in the case of hyperlocal, the Facebook motto of moving fast and breaking things may just beg for trouble.
Ex-AOL and Yahoo exec Brad Garlinghouse gives his file-sharing service a makeover.
FORTUNE – What do you do with a nine-year-old file-sharing service that trails behind startups like Dropbox and Box? If you're Palo Alto-based YouSendIt CEO Brad Garlinghouse, you change the name, experience, and pricing. With "Hightail," Garlinghouse hopes to attract new users but also have a name hip enough to turn into a user catchphrase.
"We wanted to choose a MOREJP Mangalindan, Writer - Jul 10, 2013 2:12 PM ET
What's next for the companies involved in the NSA leaks scandal.
By Ryan Bradley, senior editor
FORTUNE -- On Sunday, a 29-year-old Booz Allen Hamilton employee named Edward Snowden stepped forward and (via the Guardian) told the world why he chose to make public top-secret National Security Agency documents. The NSA files, particularly those concerning a program called PRISM, describe how the agency could access data from several of America's largest MOREJun 10, 2013 9:23 AM ET
Apple, Google, Yahoo and Microsoft have denied participating in the controversial government program. When will one of their employees say otherwise?
By Ryan Bradley, senior editor
FORTUNE -- Thursday night, after the Guardian broke news of Verizon's involvement in a massive domestic spying operation by the National Security Agency, the Washington Post and the Guardian both revealed the existence of a program called PRISM -- a means by which the government gained access MOREJun 7, 2013 11:51 AM ET
New media companies -- from Gawker to Buzzfeed -- have sprung up to feed every niche (and then some). Which are actually profitable?
FORTUNE -- The web has given rise to a number of notable digital publishers serving almost everyone's tastes, from straightforward news to guilty pleasures. For every Pulitzer-winning 10-part series on wounded war veterans, there are just as many frothy posts like the "10 funniest cat GIFs of the MOREJP Mangalindan, Writer - May 10, 2013 11:50 AM ET
AOL CEO Tim Armstrong has been on a roll - and he wants to make the most of it.
FORTUNE -- To AOL CEO Tim Armstrong, Silicon Valley is a "pig pile" where every company is copying every other company. "Everyone is putting out the same services, the devices have become more commoditized, and the platforms are the same," he said Thursday during a presentation at the Paley Center for Media in MOREDan Mitchell, contributor - Mar 8, 2013 1:48 PM ET
Also: Why Apple's alleged iWatch doesn't scare Pebble; AOL buys gdgt blog.
Apple updates processors and prices of MacBook Pro with Retina Display [APPLE]
The 13-inch MacBook Pro with Retina display now starts at $1,499 for 128GB of flash, and $1,699 for a new 2.6 GHz processor and 256GB of flash. The 15-inch MacBook Pro with Retina display now features a faster 2.4 GHz quad-core processor, and the top-of-the-line 15-inch notebook comes with MOREJP Mangalindan, Writer - Feb 13, 2013 2:23 PM ET
Eleven lowered their 12-mos. targets in December, yet few stocks have as far to go
FORTUNE -- Analysts tend to get nervous when a stock they follow drifts too far from their published price target, and few stocks are as widely followed or as far out of whack as Apple (AAPL).
Eleven analysts lowered their Apple targets in the final weeks of the company's first fiscal quarter of 2013, which ends Saturday. MOREPhilip Elmer-DeWitt - Dec 28, 2012 8:37 AM ET
FORTUNE -- More than a decade since Brad Garlinghouse helmed a start-up, the ex-AOL president is in, a way, coming full circle. Only this time, he's joining the file-sending and sharing company YouSendIt as CEO.
Though some had speculated he might go the investor route after his departure from AOL (AOL) last December -- Garlinghouse has invested in several startups over the years and served a brief stint as senior advisor at Silver MOREJP Mangalindan, Writer - May 15, 2012 1:02 PM ET
Fortune's curated selection of tech stories from the last 24 hours. Sign up to get the round-up delivered to you each and every day.
* It's confirmed: As part of a $926 million restructuring effort, Sony (SNE) will lay off 10,000 employees by the end of March 2013. The struggling Japanese electronics giant also explained its plans to focus on core businesses like gaming, digital imaging, and mobile, as well as hopes of turning around MOREJP Mangalindan, Writer - Apr 12, 2012 11:00 AM ET
|Where you live plays a big role in your total income tax bill|
|5 people you might not tip (but should)|
|Many recalled cars won't be repaired|
|Medicare pays doctors less than private insurance|
|When she earns more than he does - More Money|